Omar Campbell: Property tax vital

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— Towny Anderson's commentary in the March 29 Pilot & Today ("Sales tax and community character") was right on the mark. This matter has come up at least twice the past couple of decades. The last time, the City Council appointed a "blue ribbon" committee to consider it. The committee's recommendation, agreed to by council, was to stick with sales tax to support the city. That was a mistake, in my opinion. A property tax could have averted the budget crisis we are in - hindsight now, of course. No one could have predicted the depression we are in, but it is now obvious that we need to act for the future.

My suggestion is that the current sales tax be cut by a couple of percentage points, as an offset, and a city property tax be put to the voters. A property tax plus a reduced sales tax should cost taxpayers about the same as we now are paying in sales tax alone.

As Anderson points out, second-home owners actually are getting a free ride in supporting our town. They come for two or three weeks a year and contribute practically nothing to sales tax revenues.

Tourism is a fickle base for the support of our town. A property tax should lend stability, regardless of the usual ups and downs of the general economy.

I also agree with Anderson that a sales tax base causes elected officials to promote growth and "big box" retailers to increase sales taxes. Do we want to become like Edwards and Avon in Eagle County? Generica, USA?

Omar Campbell

Steamboat Springs

Comments

Scott Ford 5 years, 8 months ago

Towny and I agree on a number of things but this is not going to be one of them. Having a property tax is seen as a "cure all" to the City's financial woes. My problems with the approach being proposed are: 1. Its complexity and the unintended consequences of having the application of a property tax apply differently to different taxing entities. 2. The underlying premise that sales tax as the primary source of revenue causes city government to do silly things when it comes to enticing growth in the retail sector. (This can happen if financial incentives are given to attract "big-box" retailers, however, I do not think that has been the City's approach.)
3. If a business case can be made that a "big box" such as a HomeDepot would like to locate west of town what is wrong with that? Although I do not think a "big-box" is coming anytime soon, population and the demand for the goods offered will be the determination.

Sales tax as a source of revenue works and it is very predictable. This was the conclusion of the Citizen Tax Policy Advisory Board as well. What has changed? I would like to hear from others as to why they think sales tax does not work.

I know without doubt what does not work. It does not work if the City does not show fiscal restraint. It was silly for the City to view the 2007 sales tax collection year as normal. Locally as well as nationally the economic engine in the retail sector was overheated.

It would be far better if the City would develop financial discipline to develop budgets on a rolling three year average. Build reserves in the up cycle spend reserves in the down cycles. I know this year that City Council started the process of how to rank spending priorities. Holding them accountable to expand and improve on this process is far easier than figuring out another very complex way to toss more tax dollars into the system.

If a case can be made that more money is necessary to provide core city services, is it not more intellectually honest to request an increase in the sales tax rate? Paul H., I know you follow these blogs if I am being short-sighted let me know.

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ybul 5 years, 8 months ago

The first thing that needs to happen is the financial discipline you speak of, but going further than a three year average.

Paying for improvements with cash and not going into debt. Debt service comes first, causing the need for larger cuts. Those bonds issued to pay for the library actually will cause the city to cut deeper than would have been necessary without the debt.

We need to learn to wait and save for things we want and pay for them with cash as opposed to having pre-instant gratification (as instant gratification would be buying something immediately after obtaining the money for it. Waiting until after you have the money and making sure that your reserves can handle for a downturn even if you decide to spend millions on a library and purchasing with debt is playing with fire.)

We are here now today, though. I think that the city needs to find a way to cross train workers. Maybe move some offices to the old portion of the library and have the librarians who sit at the front desk do paperwork, in addition to helping patrons (especially as most self check out their books).

All positions need to be observed and determined wether or not there would be a way to complete two tasks from one desk.

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Scott Wedel 5 years, 8 months ago

The idea that a property tax would have avoided the current budget crisis is misleading. The sales tax is an immediate reflection of the local economy. The property tax is delayed by the the reassessment cycle. While property tax is stable right now, the real estate market is down sharply as well. Next year and subsequent years are going to show 30% or so declines in property values. So property tax revenue is going to also go down sharply next year. And it will also take longer to recover because of the delay caused by having to be reassessed.

It probably makes more sense to have tax revenues immediately reflect current economic conditions. City services related to tourism can be cut when there are fewer tourists. If the city relied upon property taxes then whenever tourism returns strong then the city would be stuck with greatly increased demand in services while it'd take another couple of years to hopefully get an increase in property tax revenues.

As much as the city and county budgets have been cut and how many government employees have personally suffered, I do not see public outrage of having essential city services cut to an unacceptable level.

Lastly, any public vote on new taxes is going to bring up the Iron Horse Inn fiasco. If they City can have so much money that they are willing to do that sort of a deal then something is wrong and something needs to be changed so it could never happen again without a public vote. The real impact of the Iron Horse has not yet been felt because it had been leased, but inept management oversight by the City allowed the tenant to walk away and now it sits empty not collecting rent and costing the City about $500K a year.

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mavis 5 years, 8 months ago

How on earth is property tax increases a good solution?? How are the people that are trying to stay in business going to afford that? Eventually the people that are losing jobs and being cut on pay will pay for it and they too can't afford it- How about requiring some financial accountability from these agencies?? This is like giving money to the school district to rebuild schools- supposedly tear down modulars- but oh oh they moved them- set some on foundations last year and now are going to tear them down I'm thinking that is at LEAST 70k in WASTEFUL spending How often does the city make wasteful decisions?? It is time to just STOP TAXING to solve the problem and make people LEARN how to not just throw money away

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Paul Hughes 5 years, 8 months ago

Yes, Scott, I have been following the tax-articles blogs. I don't think you're being short-sighted, but I don't think you're accounting for all the variables, either.

As David Brunori and others have said, a tax must be understandable, productive, fair and progressive. That's why Brunori says the property tax is by far the most widely used local tax: it's closer to those 4 goals than any other tax we can think of. Our sales tax is moderately understandable, spasmodically productive, unfair and regressive. It is patently unfair and regressive, for example, for a lower-income family to spend 9%+ in taxes on their groceries and utilities while the second home owners who represent 50% or more of all housing pay nothing for their city services except when they're in town and go shopping or dining.

No one I know is suggesting that we ADD a property tax to the taxes we already have. What I've been suggesting since 1999 is that we take a fresh look at the system we have and its pluses and minuses. If we were to start a City of Steamboat Springs now, what sort of tax system would we devise that would be understandable, productive, fair and progressive -- and therefore acceptable to the voters? I believe that it would look different from the one we now have. Our current system was devised under very different demographic circumstances. Things are different now, yet we're still doing the same old thing and expecting different results. Insanity, right?

I agree with Omar Campbell that the Tax Policy Advisory Board report is nothing to get excited about. In fact, I think the TPAB work was 9 months wasted. There are more words spent about how the City's budget report should look on the printed page than about tax policy of any kind.

I believe that we can and should sit down with a clean sheet of paper and talk about what tax system would work best for the City and its residents over the next 20 years. There is no down side to doing so, but there could be considerable benefit.

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sickofitall 5 years, 8 months ago

My property tax has more than doubled in the past five years and we are STILL in the same boat!

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callguinness 5 years, 8 months ago

Sick,

Thats because all of you property tax goes to the State and county none of it goes to the city.

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Scott Ford 5 years, 8 months ago

Scott W (First of all thanks for using your real name I think we can all tell the two Scotts apart if we use our last initial.)

Sales tax is collected only on tangible goods sold to the end user. Sales tax by itself is a very poor measurement of the overall economy's health. From a community economic development perspective we look at three indicators to assess the economy's health. I. Diversification - Total salary/wages/proprietors'' profits by industry sector Full/Part-time employment by industry sector II. Increases / declines in household income

That is not to say the sales tax collections are not important but they have very little to do with assessing the overall health of the economy.

To put it another way sales tax collections are city revenue and nothing more. However, dynamic economy such as ours sales tax collections are not a great reflection of the economy's health. Permit me to expand on why -

As a source of personal income the Retail Trade sector in Routt County accounted for 9.4% of personal income 2006. This is not great. (2007 numbers will be released by the BEA by the end of the month.) In the ideal world the Retail Trade sector should generate 11% to 14% of a community's personal income. (It is a very predictable because it is a function of household income and population.)

The Retail Trade sector is under performing in Routt County. This downward trend been taking place for several years. For the past 10 years we have been averaging a .3% decline year to year. To put it another way we seem to sell a lot of "stuff" as measured by increase in sales taxes but make less and less money (personal income) doing so. Why? It is likely due the economic landscape of what price the consumer market place will tolerate for goods and what the expenses are associated with selling those goods. (Retail is not for the weak of heart there is very little room for error. There are far more ways to lose money than to make money.)

More on other stuff later

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Scott Ford 5 years, 8 months ago

Paul Thank you for using your real name as well. I sincerely appreciate your thoughtful response and comments. I need to run a few errands but will respond sometime this evening. I do not want you to feel ignored.

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JLM 5 years, 8 months ago

The last thing that SBS needs right now is a new tax of any kind whatsoever. SBS is more than adequately taxed. The real issue is government management of its/our financial affairs.

Government must learn to budget, spend and account for its spending with a weather eye turned toward the realities of the economy.

In good times, they must cautiously spend and increase spending at a rate which reflects objective growth in services (e.g. population based) and increased productivity of the city staff, save for a rainy day and pay off debt.

In bad times, they must reduce and restrain spending, contract staffing, cautiously spend some of the rainy day savings and use a minimum of new debt.

The idea that in difficult times that government should receive an increasing slice of a decreasing pie in order to continue spending at a constant rate is sheer utter nonsense. This is a prescription for disaster.

Government must manage its/our expenses in a manner consistent with economic reality.

The greatest challenge is that nearly every city manager and city council member is an inadequate financial manager and is typically so inexperienced that they cannot identify exactly where SBS and the economic cycle currently are.

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JLM 5 years, 8 months ago

The problem with taxes and politicians is that you simply cannot escape the continuing increase of taxes and you simply cannot trust the politicians.

The estate tax was originally enacted in the US as a temporary "war tax" intended to fund wars and then be cancelled. They forgot to cancel the estate tax after WWI and here it sits as an institutionalized element of taxation. Original legislative intent be damned!

If you allow politicians to create dual sources of funding from the public purse, they will increase BOTH whenever possible and the linkage will be quickly forgotten.

It is extremely dishonest or perhaps simplistic to champion a progressive tax at the local level when the allocation of services is so unitary. Basic services are primarily provided to people --- not buildings. While utility services are provided to both people and buildings. One calls out for a "cost of service" model while the other calls out for a "usage" model.

It would be infinetely fairer and easier to understand if the regressive nature of sales taxes was simply dealt with directly.

To ignore the huge magnitude of city fees and sales taxes --- to say nothing about the local earned income --- in the development of housing, even second homes, is to simply disregard a huge source of income --- directly and indirectly --- from real estate. Much of it delivered directly by sales taxes on material purchases. Real estate which often does not create a real increase in the provision of city services.

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Scott Wedel 5 years, 8 months ago

Scott F, Why did you say "bumpkins"? Your usage appears to be the first usage of that word in this discussion.

And if current ratio of sales tax paid is 60/40 tourist to local then that is better than the ratio believed to exist for second homes.

And sales tax is not that unfair - look at all of the socially progressive European countries that charge huge sales taxes (aka value added tax). It is imperfect because those with less spend a higher percentage of their income/wealth that those with more, but it is not nearly as bad as lottery tickets, alcohol and tobacco taxes and such in which the less well off spend far more of their income than wealthier people. Nor is it "fair" to charge the same fees regardless of income and wealth for public services such as park and rec.

Trying to be perfectly "fair" is not worth all of the bureaucracy and it is better to stick to something that is straightforward to calculate and collect.

And efforts to change the local taxes to be more "fair" are transparent attempts to raise taxes because the only times the discussion comes up is when sales tax revenue is down. Where was this discussion in 2007 when the City was being flooded with sales tax revenue?

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Scott Wedel 5 years, 8 months ago

A property tax is, in general, a more fair tax than a sales tax. That is because typically a property tax does a better job of taxing those with more money and has less of an impact on those with less money.

Except Steamboat is not a typical place because of all of the tourists. Thus, the local question of how to fairly apply taxes is not "How to fairly allocate tax burden based upon income and wealth?", but "How to make the tourists pay as much of the tax burden as possible?".

As to Scott Ford's point that retail sales is a relatively small part of the overall local economy - true, but at the current time the state of retail sales is going to mirror the local economy in general. First link is that retail sales are going to be closely tied to tourism. And if tourism is way day then so will be the real estate and construction sectors. Other than coal mining and healthcare, there is not a whole lot in the local economy that is not going to be down if tourism is down.

And the biggest factor in questions of taxation, have government services been cut to a level considered unacceptable to the public? I note that snow removal for the past week has been just as vigilant on even minor residential streets (I live on a court) which surprises me because most of the days it was just a little snow that was going to melt anyway (warm temps and partly cloudy). Historical preservation down to 1 person from 3 is not exactly a justification for new taxes.

There was so much unnecessary spending that this sort of cuts in government spending is probably a good thing. And if local government had said that rapid growth in revenues did not mean that spending had to similarly increase and had instead saved it or proposed reducing taxes then maybe asking for new taxes now would have some credibility. But what is happening now is called fiscal discipline and to the extent that it hurts now is directly related to the lack of financial discipline of recent years.

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sickofitall 5 years, 8 months ago

ummmm...I do not care who it goes to. My Property tax has more than doubled and yet, here we are. I'm not making double the money. It is like a bonus mrtgage due every April!

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Scott Ford 5 years, 8 months ago

Skitownpuppet

I am not the "be nice" police, but I would encourage you to debate the specific merits positive or negative of Towny's proposal. It is OK to disagree. However, I think we cross the line when an opinion becomes a personal attack. I know how easily it can occur when we are passionate about an issue.

I welcome this blog as a forum for an active exchange of ideas on an issue. In addition to occasionally being informative the exchanges can be entertaining as well. There is great value in maintaining a level of civic decorum in our exchanges. This ethic is likely more important to remember when exchanges can be from an anonymous source. Agree?

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Scott Ford 5 years, 8 months ago

Paul I remember back when you first shared these 4 points with City Council. You took us to school that evening. It was very interesting and informative. (2003?)

I would agree that the sales tax we have currently implemented (1974?) when the demographics were very different. Back than I think the sales tax split between visitor and local was close to 90/10. At the time it was the right tax strategy since a lot of the services / infrastructure that was needed was needed to support the growing visitor economy. It work well. Without question we live in the "house" that tourism built and it is a pretty cool house. The sales tax split now is closer to 60/40 and that is likely the ratio we will have for some time.

One of the challenges we have is that we view "second home" owners in a dismissive way that does not serve us well. I would encourage all of us to view them as part-time residents. It is true that the City does have to extend services to these part-time residents. Are they here long enough to spend enough to offset their impact with sales tax? I am not sure. It all depends upon how long they stay and what they do. I know that from the NWCOG second home study that the percentage that owned second homes in our area with the intent of retiring here was about 2X of that seen in Eagle and Pitkin counties.

If we really wanted a tax that met the 4 points David Brunori outlined understandable, productive, fair and progressive we ought to be promoting a local income tax. Agree? Although I think the state constitution prohibits such a tax at the local level.

BTW
I do not think that the Tax Policy Advisory Board's efforts were a wasted 9 months. They were not a group of "bumpkins". I think you would agree with me that this was a smart group of folks willing to serve. I can clearly remember your disappointment when the Tax Policy Advisory Board was drifting to the conclusion that sales tax was still a viable funding mechanism.

I was always a bit curious why you did not want to actively debate the direction they were leaning toward. I think they would have been more than willing to attend "tax school". They wanted to do the right thing for the City and its citizens.

I can remember the meeting when Don Taylor the City Finance Manager told the TPAB that sales tax was a reasonably predictable funding source and it worked as long as the city showed great fiscal restraint. They were ready at that point in time to hear a different point of view; willing to entertain thoughts from an opposing forward looking view. But I recall no opposing perspective being presented. I am not sure why. I am sure that there was a host of reasons it just seemed to me like an opportunity lost.

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aichempty 5 years, 8 months ago

The problem around here is money being spent for discretionary purposes which have nothing to do with roads, water, sewers, fire and police service.

OOOH! Let's buy the Iron Horse! Let's build a new Kangaroo Kourt House! Etc.

Now the employees responsible for feeding the white elephants are taking 10% pay cuts and the elected officials are waking up with monetary hangovers after spending like drunken sailors when times were good.

Well, the good news is that the cost of a ski pass is going down $40. That should make up for everything else.

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Scott Ford 5 years, 8 months ago

Scott W Paul indicated in one of his responses that he thought that the Tax Policy Advisory Board was a wasted 9 months. I disagree. These were smart folks. They were not a bunch of "bumpkins". The term "bumpkins" was used in that context. Just another of the many colloquialisms I use.

More importantly I felt that the TPAB's findings were correct. I think their finding disappointed the City Council which was hoping the recommendation would have been for a property tax. I agreed with the TPAB's conclusion than and still do today. Sales tax is not perfect few things are but I believe it works now and will work well into our community's future.

The impact of second homes are a difficult one to understand financially. We know they pay use tax when they build, they pay sales tax when they furnish their place, the pay sales tax when they buy the new Subaru they park in the garage and lastly they pay sales taxes when they visit. How much they pay when they visit depends on how long they stay. Is it enough? At what point is there a breakeven? Who knows?

In rereading your posting I think you and I agree that the proposed property tax being wished-for by Towny which Omar Campbell is referencing would be very complex and would require a large bureaucracy to support. If, and this is a very big "IF", the city needs additional revenues to support core services would it not just be easier to raise the sales tax rate?

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Scott Wedel 5 years, 8 months ago

SF, I didn't see anything in Paul's post suggesting the TPAB were not smart. The 9 months were "wasted" because the TPAB didn't recommend a property tax and instead noted the bigger issue was budgeting.

Thus, the "problem" with the TPAB was not that they were ignorant locals that did what they were expected to do, but that the TPAB has the audacity to think independently.

I suspect the drain on City government from empty second homes is less than claimed because the advocates cannot even point to clear examples of the problem. We do not have whole developments that have no residents. I think Aspen has more of a problem with that because they appear to have more of the Cindy McCain type of homeowner - the type of person that owns so many house that her husband is not sure how many she owns And thus, those sort of people have many houses in which they spend very little time.

I think a survey of second home usage in SB would find that most are occupied several months a year and that a "surprising" number are occupied year round. (And that some are unlicensed nightly rentals not paying taxes).

A tax that is matched by outsiders at $1.5 per $1 paid by locals is a heck of a good deal. And a property tax is nowhere close to that ratio.

And I am not terribly impressed with addressing budget issues by pay cuts and furloughs. That assumes the issue is temporary. When are they going to decide that this is the new normal?

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Fred Duckels 5 years, 8 months ago

I don't always agree with Towny but the Idea to be less dependant on sales tax will define our future. Are we to be a special place, or a duplicate of thousands of towns across the land? With our natural beauty it would be a shame to compromise. With the increase in second homes a property tax makes sense.

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dave fisher 5 years, 8 months ago

I don't always agree with Fred, but this is certainly one instance where I find myself doing so.

Scott Ford's comment:

"The impact of second homes are a difficult one to understand financially. We know they pay use tax when they build, they pay sales tax when they furnish their place, the pay sales tax when they buy the new Subaru they park in the garage and lastly they pay sales taxes when they visit. "

Agreed. However, we have no way of being certain that the taxes being collected for their purchases are being collected in Routt County instead of the counties on the I-70 corridor that have most of the big box stores and/or car dealerships (with the exception of the use tax, of course). Hopefully the local business community will successfully continue enticing the "fur coat crowd" to buy local, thereby bolstering the financial bottom line of our local communities and county as well. I feel it would be shortsighted to assume that the 2nd homers are buying the bulk of their furnishings and new Subarus in SBS. The bulk of the taxes netted while they are staying here are most likely brought in by the grocery stores, liquor stores and restaurants. As a side note, the taxation of food items and necessities such as telephone service and electricity is without a doubt the most burdensome on the working classes. Taxation of discretionary items such as beer, cigarettes and lottery tickets can hardly be considered "regressive" as these luxuries are not things needed by any socio-economic class for their day-to-day survival.

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Scott Wedel 5 years, 8 months ago

When you pull a building permit they estimate your materials and resulting local sales tax and you pay that. So the sales tax for the materials for building the second home is paid to the county regardless. When you buy the materials in the county you show your building permit and they only charge you state sales tax. If you purchase outside of the county then you pay full sales tax.

And the type of people that have a second home in SB consider their time to be valuable. It is much less likely that it is worth their time to spend a day going to Denver to save a few dollars. Locals on a budget are the ones more likely to spend a day to save a few dollars.

Since SB has a Walmart, one can get essentials at a low price and it is the same price as other Walmarts. The real draw of I-70 corridor for shopping is selection since they have so many more stores.

Since the tax on discretionary items affect the poor far more than the rich then it is regressive. It may be discretionary, but that does not mean it is not regressive. Read the definition of "regressive".

And to me, the key issue is that tourists pay $1.5 of sales tax for every $1 paid by locals. If property tax were anywhere close to that then it'd be a great idea, but I think the numbers for property tax is going to me much closer to $1 for second home owners per $2 for locals. It would be a massive shift of taxes from tourists to locals.

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ybul 5 years, 8 months ago

A property tax might be vital. However, here are a couple of problems with it.

First this area saw a much larger run up in real estate prices than elsewhere in the state. The state has instituted a mechanism to not allow property taxes to go down in the future.

This potentially places an unfair burden upon business' within Steamboat Springs that might be looking to diversify from the cyclical tourist centric model. This effect is going to have a long term negative effect upon properties in the area as they will be burdened with larger taxes than in other areas and might force business' out.

While it might be vital to move away from the current model, the other problem is that it places a larger burden on business. Which Scott or Steve eluded to, without a mechanism to counteract that issue, the movement away from sales to property taxes could force business out of the area.

Unfortunately, speaking of layoffs within the city and county are unpleasant, however, what does the city really need to be doing. Could some of those functions be preformed more efficiently by the private sector for less money?

It is nice for government to be able to come to the taxpayers with an open hand, where as in business when revenue falls you try to offset that (or better yet saved to weather the storm). Too bad Keynesian economics has become spend and spend more for government entities (of course Keynes was a believer in Marxist principles).

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JLM 5 years, 8 months ago

Governments are responsible for managing OUR money regardless of the economic climate. Why should tax recipients be divorced from the realities of tax payers? Why? Who gets a free pass on the economy? And why?

Governments are cavalier about how they spend OUR money. Witness the commentary on the Courthouse overrun justified because it's "capital" rather than "current"! Huh? It's still money.

The Iron Horse debacle shows the wisdom of not allowing government to ever participate in any business segment which is provided by the private free market economy. It is not just unwise, it is irresponsible. Governments exist to provide citizens what they simply cannot provide themselves (e.g. area wide law enforcement).

Instead of asking --- How can we get more tax money to balance our bloated budget? Government should be asking --- How can we reduce the burden of government taxation on our citizens?

Tax policy shoud be guided by a desire to require a declining percentage in a growing economy; and, by maintaining a consistent percentage in a contracting economy. Until tax policy reflects this philosophy and leads/informs tax decisions, we are held hostage to an unending demand for more of our work to be diverted to government usage.

Enough is enough and we are way past enough!

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Kevin Nerney 5 years, 8 months ago

ybul- or little business gets pushed out by big business and then big business decides not to come in and therefore there is no tax money as is the case with Ski Time Sq. I for one am glad I'm not paying taxes to the city anymore. As some famous person once said "Let them eat cake".!!!

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